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Two thing jumped out at me when I read a CNET interview with John Battelle of Federated Media this morning – his direct criticism of competitor Glam Media as a “flavor of the month,” and his suggestion that he may take equity stakes in his publishers.

The first thing that stuck out was his criticism of competitor Glam. CNET’s Stefanie Olsen asked Battelle “Vertical ad networks like Glam Media are really popular right now. Investors love them. Why do you think that is?” His response: “Because people don’t understand them and they hope things that they don’t understand will pan out.” He added “I just think they are the kind of flavor of the month, but you have to get down to where do you add value to the marketer and where do you add value to the publisher.” In a world filled with over-media-trained executives, its refreshing to see someone go after a competitor with such a direct statement.

My next question would have been to ask him how Federated Media is different from Glam. Federated Media sells advertising for tech sites; Glam sells ads for women-focused sites (although their biggest partner is MyYearbook). Other than the focus of the ad sales effort, the differences are not obvious to the casual observer.

The truth is the networks have significant strategic differences. Glam owns a few properties of its own, which helped in the early days as anchor properties. Federated Media does not own any major publishing sites.

Glam also guarantees revenues to partners. MyYearbook is rumored to receive a guaranteed CPM on page views, and many of the blogs get guaranteed monthly payments of $10,000 or more. Those guarantees resulted in a loss for Glam of $3.7 million last year on $21 million in revenue. But it also accelerated growth and allowed them to raise a massive round of financing.Federated Media, by contrast, doesn’t guarantee revenues but is profitable. They’ve raised just $7.4 million.

But Battelle also reportedly has Glam envy. He turned down a $100 million buyout offer, reportedly because he felt Federated Media should be worth at least as much as Glam ($400+ million).

Will Federated Media Buy Or Invest In Publishers?

The weak point of Federated Media’s model is that they don’t control their own publishers. If a better deal comes along, those publishers will bail – which is what happened last year when Digg left the network for a big, three year guaranteed revenue deal from Microsoft.

One way to solve that problem without guaranteeing revenue is to own publishers, or at least a stake in them in return for a contract they can’t get out of. When Olsen asked Battelle what he intended to do with the venture capital he’s in the process of raising, he said:

Word has it you’re looking to raise money and you’ve hired Savvian to vet offers. (CNET News.com story here.) Given that you’re already profitable and don’t need the cash, what do you plan to do with the money?
Battelle: Well, I can’t say specifically what we might do with any money that we might raise, should we do a fund-raising round. But I think there are an awful lot of opportunities in this emerging field and it’s just good to have access to capital to execute any reasonable ideas that we might have. It’s a very quickly changing market and it needs financing. I mean individual sites need financing and we want to be a good partner for all of our sites.

What do you mean individual sites need financing? You want to fund some of the sites you represent?
Battelle: I’m not saying that we’ll necessary do that. I’m saying that it might not be a bad idea to be ready, should that become something that those sites are looking to do. In a fast-evolving model, it pays to have a strong balance sheet.

So Federated Media says they want the option of investing in their publishers down the road. But certainly there will be strings attached. Here’s what I think he really means: They’ll either buy sites outright, or guarantee revenue, or guarantee revenue in exchange for equity. A publisher wouldn’t consider Federated Media an attractive investor versus venture capitalists simply because it would mean tying their revenue to them over the long term.

But at one point in the interview Battelle said a roll up wouldn’t work, because authors must be independent to be authentic (I’m interpreting, not quoting). So there’s some conflict in some of his statements. What are they really thinking? I have no idea. But revenue guarantees would be a nice place to start.